Lecture Notes for chapter 12

Lecture Notes for chapter 12 - Lecture Notes for Pindyck...

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Unformatted text preview: Lecture Notes for Pindyck and Rubinfeld Chapter 12: Monopolistic Competition and Oligopoly Monopolistic Competition: Market in which firms can enter freely, each producing its own brand or version of a differentiated product. Examples: Different brands of consumer goods toothpaste, shampoo, shoes, clothes, snack foods, sodas, different restaurants, etc. Oligopoly: Market in which only a few firms compete with one another, and entry by new firms is impeded. Firms compete against each other and behave strategically. Examples: Auto manufacturing, airplane manufacturing, cell phone service, etc. Cartel: Market in which some or all firms explicitly collude, coordinating prices and output levels to maximize joint profits. Cartels can come about in markets that (without the cartel) would have been either competitive or oligopolistic. Examples: OPEC, copper producing countries, diamonds Market Structures Market Characteristic Perfect Competition Monopoly Size and Number of Buyers: Many buyers, no one of which is large relative to the overall market Many buyers, no one of which is large relative to the overall market Size and Number of Sellers: Many sellers, no one of which is large relative to the overall market. Sellers do not behave strategically. One seller, does not behave strategically. Degree of substitutability among different sellers products: The outputs of different sellers are homogeneous No close substitutes to monopolists product Conditions of Entry: Neither technological nor legal barriers to entry exist. Either technological or legal barriers completely block entry Market Structures Market Characteristic Monopolistic Competition Oligopoly Size and Number of Buyers: Many buyers, no one of which is large relative to the overall market Many buyers, no one of which is large relative to the overall market Size and Number of Sellers: Many sellers, no one of which is large relative to the overall market. Sellers do not behave strategically. Few sellers, each of which is large relative to the overall market. Sellers behave strategically. Degree of substitutability among different sellers products: The outputs of different sellers are heterogeneous The outputs of different sellers may or may not be differentiated Conditions of Entry: Neither technological nor legal barriers to entry exist. Technological and legal barriers may or may not exist generally assume that new entry is impeded Market Characteristic Cartel Size and Number of Buyers: Many buyers, no one of which is large relative to the overall market Size and Number of Sellers: Varies - There may be many sellers or there may be few sellers. Sellers behave strategically. Degree of substitutability among different sellers products: The outputs of different sellers are homogeneous Conditions of Entry: Technological and legal barriers may or may not exist Monopolistic Competition Due to the differentiated products, the firms have downward sloping demand curves....
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Lecture Notes for chapter 12 - Lecture Notes for Pindyck...

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